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Post-merger Huntington focused on deal savings, growth

StreetTalk – Episode 70: Banks' Liquidity Conundrum Could Fuel M&A Activity

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Post-merger Huntington focused on deal savings, growth

Following the third-quarter 2016 acquisition of FirstMerit Corp., a $3.4 billion deal that beefed up Huntington Bancshares Inc.'s asset size by roughly a third, executives said the integration is progressing smoothly and the buyer is on track to realize substantial cost savings this year.

After Huntington posted fourth-quarter 2016 net income applicable to common shares of $193.4 million, the Columbus, Ohio-based regional bank's executives said during a call with analysts that they are confident their previous projections of $255 million in total annual expense savings on the FirstMerit deal will be efficiently realized.

They said all reductions needed to reach the savings target have been identified and they expect them to be fully implemented by the third quarter of this year. Executives said they have already realized about 50% of the savings.

Notably, as part of the cost-reduction effort, Huntington said it would consolidate 103 branches, or roughly 9% of the combined banks' network, in conjunction with a conversion planned for mid-February. The bulk of the closings will involve overlapping branches. They said 39% of legacy Akron, Ohio-based FirstMerit branches are within one mile of Huntington branches.

"We have a lot of momentum across our businesses, and we're ready to build on the hard work that got us to this point," Huntington Chairman, President and CEO Stephen Steinour said on the call.

That work will include capitalizing on Huntington's larger size, broader array of business lines and deeper customer ties in the Midwest to grow revenue substantially. With about $100 billion in assets, Huntington executives said they expect to boost the company's top line in excess of 20% in 2017.

That goal includes the expectation of one Federal Reserve interest rate hike this year. Fed policymakers lifted their benchmark rate by 25 basis points last month and indicated additional increases are likely to follow in 2017. Huntington executives said they already saw some early benefit from the December bump and anticipate further upside early this year. When rates rise, asset-sensitive banks such as Huntington often earn more interest income on their lending. An additional rate increase, which Huntington executives estimate will happen mid-2017, would tack on additional income benefit, they said.

Huntington's fourth-quarter net interest margin of 3.25% was up from 3.18% the previous quarter and up from 3.09% a year earlier. The bank attributed much of the advance to purchase accounting accretion on acquired FirstMerit loans. But excluding that benefit, the core NIM still advanced by a single basis point during the fourth quarter, and executives expect it to continue to expand this year.

"Our top priority is integrating FirstMerit and growing our core business," Steinour said.